I’ve been in the emerging tech space for 20+ years. So often, I have sided with the “underdog” who uses technology to try to beat the status quo incumbents in a market. I’m a believer in new technologies pushing incumbents, creating new paradigms, and better experiences for consumers in the market. (Thank you, Uber!)

So, why is it that so many of us are sensing negativity towards MCX? After all, isn’t THAT what they are doing? …Pushing the status quo of the payments market through technology?

I was sifting through the hundreds of tweets from Dekkers’ recent Money2020 and something struck me. If the tweets overall represented an unbiased account of what people were hearing, it appeared that Dekkers was presenting CurrentC as a consumer value proposition, saying the consumer would choose the winner. But if that were the case, why would there be forced exclusivity arrangements by the member retailers not to take other mobile payments options? Where’s the consumer choice there?

To be fair, Apple is taking a closed approach as well. So far, any payments issuer who wants to play on the iPhone 6 and beyond needs to be part of ApplePay (and it appears PayPal is NOT allowed in at the moment.)

…So, why does the negativity skew so heavily on MCX? Let’s assume for a moment the consumer experience were comparable (which it looks like it won’t be). Let’s assume the value proposition is as high for the consumer as it is for the retailer (which it looks like it won’t be.) And let’s assume the consumer has just as many choices to pay the way they want to pay (which it… you get the point.) Set all these aside for a moment…

Is it possible that, because Apple has one of the strongest consumer brands in the world on the very device we need for the service, MCX got very unlucky by choosing the wrong enemy?

Think about it… Would anyone care as much if it were a war between the big box retailers and our not-so-beloved mobile operator brands? I doubt it. In fact, consumers might sit back, throw back some popcorn, and enjoy the fight…

But something seems different here. Apple users are outraged (and will continue to be outraged) that their favorite brand is being scoffed by the retailers.

Let’s assume MCX can fix CurrentC’s potential consumer experience issues (why is this a war of handshake technologies, anyway?!) …But to strong-arm a consumer’s favorite and beloved Apple brand? Well, some day, in the not-so-distant future, MCX retailers may look like the bad guys that don’t take ApplePay. And that’s when defections will happen… And THAT could be MCX’s downfall.

3. Has no significant barriers to entry such as regulatory barriers, prohibitive infrastructure cost, or complex partnership requirements.

(Problem: a clunky consumer experience coupled with requirement to sign up bank account could cause too much hurdle for consumer adoption. Why clunky? Because consumers are used to having a bar code scanned rather than having to first scan a bar code, then have the bar code scanned… Also, consumers will likely be hesitant to sign up their bank accounts… and finally, who would want their health history data to be shared with retailers?!)

It has been too long since I’ve blogged, but with the recent announcements around ApplePay and as the former head of PayPal Mobile Business Development for North America, I feel compelled to do so. More to come later as more news is synthesized in my brain…

First, let me start by saying, I may quite possibly be the last person who had a Nokia phone in the U.S. My loyalty as an Apple user is relatively recent. Some time in the last 6 years, I begrudgingly bought an iPhone, because I had to do so to understand mobile payments. Like everyone else, I can’t imagine my life pre-iPhone anymore.

It has been an exciting week in mobile payments between MCX’s announcement last week with their merchant-focused mobile payments/loyalty service riding on prepaid card and debit rails and, of course, Apple’s new Apple Pay service announced on Sept. 9. Conspicuously absent from all this news is PayPal.

PayPal is in big trouble.

How, you say, can PayPal, the 100 lb gorilla in ecommerce payments and mobile payments be in trouble? After all, it has over 150+ million active accounts worldwide (every time you sneeze, there are 25+ more million accounts added) and processed $25 billion in mobile payments volume in 2013, by far, the leader in mCommerce in the US/globally (except for China). Doesn’t size in payments matter? Besides, they have cross-platform (iOS, Android), online/and mobile payments mark. How could they get unseated?

Some thoughts to consider:

1. Apple Pay, integrated into the iOS, calls into question PayPal’s value proposition that used to set it apart from others. PayPal grew its business through arbitrage. PayPal met a very important need in 1999-2000 and beyond. Specifically, they provided security, trust, and convenience in online payments between parties that didn’t know/trust one another. They did this through arbitrage… riding the rails of ACH to bring “real-time” payments and acting as the trusted middleman between people (P2P auctions) and, eventually, consumers and merchants. Later, their value prop included convenience since you didn’t have to input your card details (which resonated particularly in the mobile UI in the beginning of mobile commerce times.)
Apple now has a more convenient, more secure service which works seamlessly within the iOS itself. They have 800+ million iTunes accounts which are auto-enrolled with the phone upgrade. Any in-app experience, I believe, is going to work better, faster, more secure than any other’s within the iPhone experience. Unless Apple mucks this up terribly (they rarely do, except Apple Maps), ApplePay flow will likely trump PayPal’s in a heartbeat. And if you maintain that PayPal has a significant online presence, you’re correct. However, PayPal’s growth market is mobile (and mobile retail.) Apple has outflanked PayPal in their largest growing market. Over time, as PayPal becomes less relevant in mobile, it will also become less relevant in its current core business, online. Remember: share of mind and share of wallet matter in payments.

2. Apple drives mobile consumer behavior, not PayPal. Back when I was at PayPal in 2007 & 2008, the mobile business was just a toddler who was learning its legs, we had grandiose ideas around retail/NFC and how we would grow our business in this space. This was pre-iPhone. We, that first team making foray into mobile payments, learned a lot along the way. One big takeaway was that PayPal couldn’t drive new consumer behavior on the mobile phone. Although text-to-buy and text-to-give were innovative services, few consumers used them. People barely used text messaging at the time, let alone learning a new payment method on this type of interface. Just because the technology worked, didn’t mean you could shove it successfully into the market. Sadly, this lesson went out the door as employee turnover continued in the mobile business which led to the same mistakes, including launching mobile number password/PIN at the retailer… a behavior few would adopt since it flew in the face of every other learned consumer behavior (bar codes, tapping phone, etc.) that others were building. The rest of the ecosystem (and consumer behavior) had to evolve… And it wasn’t until iPhone Apps that PayPal Mobile adoption rates began to grow. Apple set the consumer behavior, and everyone else had to then run their service on top of that behavior. If I were Apple, I’d make sure my consumer experience on ApplePay far surpassed anything else anyone could do on my device.

3. Apple is the ONLY company that can achieve merchant adoption through consumer demand. Wait, what?! I have maintained for the past 9 years that mobile payments in the US is solving a consumer need that doesn’t exist. In fact, mobile payments/offers/loyalty really meet the merchant’s needs… to use it as leverage to drive down transaction fees and develop a stronger 1:1 relationship with the consumer (to drive sales.) So, Apple, being consumer-focused… how could they drive consumer adoption where the need doesn’t exist and how could they possibly drive merchant adoption?

One thing that Apple has proven is that they break all the rules we believe about consumer demand/technology/services. For that reason, I believe they will drive consumers to demand mobile payments and actually drive merchants to adopt because of that consumer demand. Apple Pay will be a “must have” in the future. Apple solves the chicken and egg dilemma through consumer-centric approach in a way no other company can. While many say that Apple is not meeting merchant needs and won’t be able to achieve success accordingly, I say, are Visa and MC more merchant-centric with their fees? Those who drive sales win the hearts and minds of merchants. Pure and simple. (Which is why mobile content providers paid 50% to MNOs for so long…)

PayPal’s approach has been to undercut MC and Visa fees to drive merchant adoption. My guess on Apple’s approach… prove that merchants will lose sales. Guess which one merchants care about more?

4. Apple has befriended the Banks (for the most part) while PayPal has alienated them. Ecosystem matters. PayPal is now “going it alone” with no friends with the big banks and associations, no friends with the MNOs (which are irrelevant now anyway), and no mobile OS control. In a world where ubiquity matters, having partners/friends that are ubiquitous in open loop helps. Because Apple doesn’t process the payment but just passes on the payload, they don’t have to grow a new business around risk analysis, customer service, etc. while also befriending everyone already in the payments value chain (even though they charge issuers $ bps on every transaction, something no one else has been able to get away with.)

Bold statements on PayPal’s strategic options

1. The enemy of my enemy is my friend: Google, meet PayPal. PayPal, meet Google. Shake and make up. Time to speed date.

2. Should eBay spin out PayPal: Really? Is this even a question anymore? While execs were busy debating if/when PayPal should be spun out, Apple has been planting the seeds for 3 years to eat your lunch. Time to move fast before your most important asset loses significant value in the next 5 years.

I’ve been working in the mobile financial services industry as an executive and as an advisor now since 2005, one year after DoCoMo launched their mobile contactless payments in Japan, and 2 years before mPesa’s commercial launch in Kenya. In the early days, it was difficult to find any research to cover the industry. While assisting Wells Fargo with their initial mBanking/mPayments strategy, I remember speaking with analysts from the top research firms who were unconvinced that mobile payments would ever take off since it had an anemic false start in 2000 (in the US) although SmartMoney was breaking new ground during that same time.

As a professional in emerging technologies for over two decades, my timing to enter new markets has always been too early. My former company, Vistify, created iPad-like device with a service for grocery delivery to the home back in 2000 (precursor to today’s iPad + Instacart/ AmazonFresh/ Google ShoppingExpress!) So, no surprise that when I stumbled into the mobile payments industry in 2005, once again I was a bit early. Luckily, it’s been an industry that has intrigued me enough to keep me captivated now for nearly a decade, learning something new every year. Few industries touch so many different angles… business, development, regulations, macro-economics, banking, mobile, technology, ethnography in such a global way. Fortunately, I stuck it out long enough for the industry to catch up and have had the fortune to gain some great early lessons along the way.

Of the most prolific mobile payments services in the world, I have had the opportunity to be involved in the early days with two of them (PayPal Mobile at $25 billion in volume in 2013) and bKash in Bangladesh, now the fastest growing mobile payments service in the world. No, I never had anything to do with mPesa, but I definitely wish I had! What’s interesting about PayPal Mobile North America and bKash in Bangladesh is how different their respective markets are, but what global leaders they have both become.

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Early days of bKash

First, let me start with the story of bKash early days, although this story starts about one year after I left PayPal. I was speaking/moderating at a mobile money conference at the end of 2009, when Kamal Quadir approached me to request my help to set up the business plan/go-to-market strategy for what is now bKash in Bangladesh. After later meeting with him and his brother Iqbal Quadir (founder of GrameenPhone), I knew that this would be a very special project, which ultimately brought me out to Bangladesh. In retrospect, with my background from PayPal Mobile, a subsidiary of eBay, it is likely Kamal saw the similarities between my experience at eBay/PayPal and the knowhow that was needed to develop a mobile payment system to support the needs of companies like his mobile marketplace CellBazaar (not to mention to become the financial infrastructure for the 90+% unbanked population.) Unlike the case in Kenya, Bangladesh’s regulatory environment was likely to lean “pro-bank” which meant that their startup, as a subsidiary of BRAC Bank, would be well positioned to be a mobile payments service, but also to resemble PayPal’s structure rather than mPesa’s.

The value proposition for the cash-based unbanked, coupled with the sheer size of the population of Bangladesh proved to uncover a business case I had yet to see. In addition, with the entrepreneurial knowhow of the extremely successful Quadir brothers, I had a strong belief that this startup would be prosperous. At the time, I had no idea it would rise to the levels we now see today. What is particularly interesting about this business is that the market itself was so different from the U.S., but yet, there were lessons to bring from PayPal Mobile that could be applied, not just on the model to be used, but also on design principles and strategic considerations. I recently heard Kamal Quadir speak at the Spring Seminars of the World Bank. He was asked why bKash has had such great success (80% market share) over his competition (20+ eMoney licensed services). His answer was “focus.” I agree that bKash has had the focus that others have not, but the entrepreneurial talent and network of the Quadir brothers is not to be underestimated. Among other things, part of that talent, of course, is understanding what lessons can be applied from other successful models.
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How can strategic lessons from PayPal Mobile’s early days in North America apply to mobile payments initiatives around the world? When I begin working with my clients, I always review the necessary conditions required for new payments systems to be successful. They include:

1. Has no significant barriers to entry such as regulatory barriers, prohibitive infrastructure cost, requires new device behavior, or complex partnership requirements

2. Has a clear value proposition addressing a specific pain point at launch for either the payer or payee

When I joined PayPal Mobile as head of North American Business Development on January 2, 2007, we had no traction (PayPal had launched Text2Buy services one year earlier). When I left at the end of 2008, we had very little traction, but it was growing. Last year, 8 years after PayPal’s first foray into mobile, PayPal Mobile was responsible for $25 billion of volume.

What made the difference? Barriers to entry began to lessen.

Some of the services we launched were tests in the market that failed – some are still used today. But the real difference between success today vs. failure back then was consumer behavior and device used. Back in early 2007, iPhone and Android devices did not exist. People barely used mobile Internet on their phones and it was extremely difficult to navigate. QR codes existed, but no one used them. (In fact, I remember early gift card companies approaching us with QR code redemption technologies. No one was familiar with QR codes.) The devices were too difficult to do anything meaningful on them and people weren’t used to using text messaging very much for communications, let alone for purchasing things. As an example, I had cut a deal in 2007/2008 with SkyMall so that users could purchase goods by texting a code as they read the magazine. The technology worked. I even used the service to successfully purchase a luxury shower head during my morning commute on the bus to work! But let’s face it, if you need to have a two-page spread in their magazine to explain how to do a transaction, do you really think it will be used? I remain convinced that Apple is the only company that is positioned to change consumer behavior with a mobile device. Every other business will need to bolt on to that new behavior once consumers have adopted it. Those that think they can change consumer behavior over the phone may be a bit delusional as we were with PayPal in 2007. (The exception, of course, are key mobile network operators abroad, such as Safaricom.)

Now, for those of you who say, “but mPesa was extremely successful with feature phones for the unbanked, how can you say that?!” Absolutely true. In Kenya, Safaricom was in a unique position to lead the mobile payments industry and could make the service simple to use via SIM Toolkit in a cash-based market that desperately needed it. In the U.S., MNOs would have to work with financial institutions. I was in charge of those relationships at PayPal. And during 2007/2008, when we were most in need of MNOs to be able to load apps onto the phone (as did Safaricom via SIM Toolkit) prior to App stores being available, the MNOs proved not to be interested in doing so. Back then, in the U.S., MNO’s had a (love)HATE relationship with PayPal since eBay Inc. owned Skype, which was seen as a competitor; the MNOs in the US did not have the focus, investment, know-how to launch a simple to use mobile payments service via SIM Tool-kit; and 3. people preferred using PCs over mobile since the devices were too cumbersome to use. The barriers to using and launching the service proved too high in the U.S. until Apple opened up the market with a far superior UI and began circumventing the MNO lock on services through the iTunes store.

—Mobile Financial Services in Developed Markets and Emerging Markets are More Similar than Expected

Ultimately, banks will play a larger role than expected in mobile financial services in most markets due to regulations even though the way mobile financial services rolls out in emerging markets will vary from how it rolled out over the decades in developed markets. We will find that the consumer facing brands/services may not originate from banks, but from third parties or MNOs with closer ties with the unbanked. Banks will play a secondary role in enabling the service and securing the deposits. But beyond this similarity around the role of banks, there are other key resemblances between emerging markets and developed markets regarding mobile payments that many may not realize. After trying to wrap my head around these seemingly disparate markets (developed vs. emerging) as an advisor to clients in both types of markets, I now remain convinced that there are more similarities than there are differences.

Many aspects of what we see in developed markets will come to the emerging markets over time. In developed markets, where access to financial services has been prevalent due to card infrastructure, the role mobile financial services plays is that of enabling the final transaction around the mobile shopping experience. The value proposition no longer centers on the consumer, but rather, on meeting the needs of merchants to increase sales.

Today in emerging markets, there is a global effort towards financial inclusion for consumers. The next step following this will be access to credit for small businesses. Once those infrastructures are in place, what will be next? The velocity of money increases as friction of cash decreases. Access to small amounts of credit (for individuals and SMEs), insurance, and savings accounts rise as does income.

Tomorrow, we will see the same trends we see in developed markets around data analytics, mobile loyalty, couponing, shopping, etc. to increase sales. The large brands including consumer goods and pharmaceuticals see that the next few billion customers are their oysters… It will happen much sooner than many expect. With the infrastructure of mobile payments/mobile financial services, both the consumer and merchant shopping experience will revolve around the mobile phone.

Although MNOs have the reach into the SME segment, these new services are far from their core competencies. Similarly, financial institutions such as MFIs, COOPs, and Banks do not have this expertise. It will be interesting to see how this new services offering ultimately rolls out in the future. Likely we will find that those involved with access to mobile credit for SMEs will use their distribution reach to offer new services by partnering with new marketing platforms globally.

I have been woefully behind in my blogging as of late due to the volume of consulting projects I have had over the past 7+ months. That being said, these projects have given me fodder to think about linkages among seemingly disparate mobile payments projects…. from mobile money market assessments in Nigeria and Ghana for Grameen Foundation to developing the mobile payments strategy for a Middle Eastern Bank (in a highly banked market) to foreign entities seeking to enter the mCommerce retail market in the U.S.

With every new project, it has felt that the only commonality was the “mPayments” title. How can we link the commonalities of creating a brand new financial infrastructure for the 3+ billion unbanked poor with the trends in the U.S. to enter retail through loyalty, promotions, rewards, etc. on the mobile phone? Here’s the link…

Of course we all know that the mobile phone is the most ubiquitous technological device in history

We all know that it has certain features/functions that enable electronic data/communications for the first time… and we know that smart phones have even more features/functions that can be used for a richer consumer experience…

In developed markets, in contrast, we have had sophisticated financial services infrastructures based on cards for banked consumers. Mobile becomes a new channel for cards rather than the infrastructure to leapfrog cash. So, why so much discussion around “Value-Added Services”… loyalty, promotions, etc. in developed markets?

How do we rationalize these seemingly different industries, both called “mobile payments?”

The answer lies in whom the value proposition targets. In cash-based economies, the value proposition very clearly supports consumers since electronic payments is far better than cash (safer, faster, more traceable, etc.)

In developed markets, consumers already have cards. Using the mobile phone is not that much better than usage of their card (I never bought into the “it’s more convenient to use your phone than to pull out your card” argument). Instead, the value lies on the other side of the equation… with merchants. Merchants still tackle many issues around driving consumers to their stores, driving repeat sales by consumers, driving higher basket of goods, etc. For the first time, the (smart) mobile phone enables them to have rich 1:1 communication with their customers to solve these issues (loyalty, rewards, offers, promotions, etc. based on increased data around their behavior.) So, where does mobile payments come into play here? It becomes the “Trojan Horse” to close the final loop at the transaction side to redeem, sign up, etc. consumers. Mobile payments becomes a necessary component, but not the driver in this equation. Of course, this becomes quite interesting as one considers that payments and marketing are likely not complementary skills within one organization (which means there will be increasingly M&A activity in these areas)

By the way, my strong belief is that it is only a matter of time that the emerging markets (once they have their consumer bases developed) will then seek retail solutions and, guess what happens, the trends we see in developed markets start to happen in emerging markets.

I never thought my seemingly disparate projects from one part of the world to the other would ever intersect, but I believe it is just a matter of time!

Today’s announcement that PayPal has partnered with Discover Card, another closed loop payment company – but in retail, could mark a game changing scenario in the land grab for alternative payments in retail. While Discover certainly doesn’t have the reach of Visa and Mastercard, it does provide a significant boost to PayPal’s merchant acquiring network. This is a smart move for both companies since Discover is the network that lags behind the others in terms of acceptance and issuance, and PayPal knew that it couldn’t win the game by organically acquiring its merchants.
Still, as an ex-PayPal Mobile exec and as someone who has used the PayPal payment at Home Depot, I believe the user experience is flawed. Having the consumer type in their mobile number and PIN is an experience that derives from a technology solution that stands without the need for partnerships and significant POS upgrades rather than the right consumer experience. The problem with the mobile number and PIN method is that it goes against the grain of the user behavior everyone else in the industry is promoting (card swipe, bar code off the phone, and NFC). This leaves PayPal alone in building that behavior which is very heavy lifting, and one that would require a SIGNIFICANT value proposition to the convince consumers to try – a value proposition well beyond what is provided by PayPal today. Can PayPal pull this off? PayPal has never been known to really understand their consumer base. They never had to as they could ride on the coat tails of eBay to get their first 50+ million users. Or will PayPal finally shift into the technology handshakes that are promoted by the industry? Starbucks and the airlines finally got us all used to the barcode on the phone. Will PayPal finally adopt this handshake? Or do they believe that the laser required to read the bar code is too much of a hurdle for its now Discover merchants to buy into (let alone NFC POS readers)?
While the Discover deal is a huge boost on the merchant side, it’s now time to focus on the consumer. Let’s see whether PayPal makes a drastic change to the consumer experience as well. An Apple deal would be the perfect marriage, but perhaps too uncharacteristic for Apple…

Recently, I had the opportunity and the pleasure to work with a large NGO seeking to launch mobile financial services for poor, unbanked small holder farmers. This NGO has a big mission: to create sustainable development in post-conflict areas. In Uganda, I worked out of the Kampala office, but focused the mobile financial services work on the Northern and Western Acholi and Karamoja regions. Incidentally, for those of you familiar with the Kony’s LRA child army devastation, much of this conflict occurred in the Acholi region of Uganda.

As I worked with this NGO’s amazing team to develop their Go-to-Market strategy, I felt so fortunate to have the opportunity to meet such incredible, smart, and interesting people and to hopefully have a positive impact in their overall mission. I was also reminded how far I was from home as I saw these 4×4 trucks parked at the client’s offices.

There is nothing quite like a sign for AK47’s on four-by-four trucks to remind someone she is far away from home, where my previous work residence a few years ago was the lovely PayPal building in San Jose.

While all of my work involves mobile payments or mobile financial services, the work itself is vastly different as I work with clients like the one in Uganda seeking to build sustainable development and increase the incomes of the poor versus the large banks or technology companies in the U.S. I often think of my business as completely bifurcated, and yet, I have to believe there is a common thread in what I do.

This question has been my inspiration for my next mobile payments event in San Francisco to explore what the connections are between seemingly disparate initiatives around the world and what is occurring here in the U.S. As I prepare for this event, I will be researching the commonalities of various initiatives worldwide. At our panel discussion, we will seek the advice of experts from around the world to get their views on linkages. Come join us as we begin to uncover what links mobile payments initiatives from Post-Kony conflict Uganda to Silicon Valley on July 23 at The Commonwealth Club in San Francisco. For more information on the upcoming event, you can find it here.